Top Considerations for Choosing the Right Credit Card
Introduction to Choosing the Right Credit Card
Choosing the right credit card can be exceptionally difficult for consumers. The wide range of choices and offers that constantly seem to appear in the mail or online can be overwhelming. Sometimes, they’re downright confusing. Close to 300 million credit card offers are typically mailed every year in the US alone. Whether you’re a teenager looking to get their first credit card, or a seasoned veteran with multiple cards and a long history, our helpful guide on the top considerations for choosing the right credit card can help to cut through the noise to zero-in on the best card or cards for you.
A Quick Note About Cash
Before we begin on choosing the right credit card, it’s important to note that credit is no substitute for cash. There are still a myriad of reasons why you should always have some cash. In fact, we have an entire article dedicated to the topic, Best Reasons Why You Should Always Carry Some Cash Money in Hand for Emergencies. Just remember that while credit is convenient, cash still has a place in your wallet.
Credit Card Basics
According to statistics, there are about 364 million credit card accounts active in the United States alone. Compare this to an adult (18+) population of just under 250 million. This means that, on average, each adult has around 1.5 credit cards. Of course, some may have 0, and others may have 5, 10, or more. We’ll talk more about how many credit cards you should have in a separate article, coming soon. The important point to take away from this is that credit cards are ubiquitous. They are something that almost every adult has. Therefore, this is a topic that is relevant to almost every adult. At some point, we all have to think about choosing the right credit card for our needs.
Criteria to Consider
There are several primary areas to consider when trying to find a reliable credit card. In this article, we’ll go over each of these in detail. While no universal guide exists on the importance of each trait for everyone, we’ve attempted to rank these considerations based on their relative importance for the vast majority of consumers. We want to present them as a guide to how they play a role in your credit card experience.
It is also worth noting that, likewise, there is no universal best credit card. If there was, we would just tell you about it and make this article a lot shorter. But everyone’s needs in choosing the right credit card are different. The various categories of things to consider are going to be weighted differently for each individual. Intended credit card use, purchase patterns, credit limit, etc. are all going to play a part in the decision. Choosing the right credit card for an individual is a lot like choosing the right pair of shoes. It depends on individual tastes, priorities, and needs.
Of course, your ability to get a credit card with a particular limit may be limited based on your credit score. For more information on how to improve your credit score, check out our guide, The 10 Best Ways to Improve Your Credit Score.
With all of that said, let’s dive right into a look at the top considerations for choosing the right credit card, in the hopes that we can help you find the best credit card to suit your needs!
Types of Credit Card
While this may not seem like a big deal to many people, the type of credit card matters. Before we can talk about the details, it is critical to know exactly what type of credit card you are attempting to choose. In general, this is pretty simple. The three primary types are:
#1 – Regular or general purpose credit cards, which offer a revolving credit balance and minimum monthly payments. An example of a general purpose card is a Visa card issued by a bank or financial institution
#2 – Store credit cards, which can either be limited to use at the brand/store who issues them, or if co-branded with a common issuer logo (i.e., Visa, MasterCard, etc.) can be used like any credit card. Examples of the store or merchant credit cards include the Amazon credit card, Best Buy credit card, Target credit card, Walmart credit card, and similar.
#3 – Charge cards (often issued by department stores or similar), that only defer payment for up to a month from the point of sale, and must be paid off in full at the end of each monthly billing period.
Store cards have gained in popularity in the past few decades. They may or may not offer special discounts and rewards for members who use their cards to make purchases at their store. Typically, the restricted/store only cards offer discounts and rewards at the store. Alternatively, co-branded cards may offer discounts or rewards only at the store. Or, they may offer much greater rewards at their store vs. elsewhere.
TIP: While we’ll touch on this later in the Rewards/Discounts section, there really is no reason to buy a store card that ISN’T co-branded, unless it offers significant rewards and discounts.
Charge cards were popular in the 1980s and 1990s especially, but have slowly been declining in popularity. However, the same statistics we cited earlier from the American Banking Association indicate that around 5% of American adults still have at least one charge card. This equates to upwards of 12 million cards, so they are worth discussing as well.
TIP: Unless you have a good reason to get a charge card, these are probably worth avoiding. For most consumers, they offer limited flexibility or options. They really only make sense if a store doesn’t offer a credit card, but has many rewards and discounts for their charge card.
In general, many of the other considerations in this article are unlikely to apply to charge cards. Therefore, we won’t really discuss them much for the balance of this article.
For regular cards and store cards, whether restricted or co-branded, the majority of the remaining factors are important considerations for choosing the right credit card.
The issuer of a credit card is the bank or financial institution behind it. They typically administrate all the transactions, and they’re who you pay every month. In order to get a reliable credit card, you need a reliable financial institution behind it.
The majority of cards on the market today are issued by a major bank or financial institution. Examples include Bank of America, Capital One, Wells Fargo, Chase, and many others. Store cards may be issued by a store themselves, or contracted out to one of these financial institutions.
If you’re considering a credit card and don’t recognize the issuer’s name at all, do some research online before you commit. Ultimately, you want to make sure they’re a quality bank or institution. They should have the experience, customer service, and financial backing to ensure you’re choosing the right credit card.
The interest rate is one of the biggest remaining considerations when choosing the right credit card. In fact, we’re planning a whole separate article about credit card interest rates, coming soon. In almost all cases, the interest rate available to you may be governed by your credit score. For more information about how to improve your credit score, check out our article The 10 Best Ways to Improve Your Credit Score.
To keep things simple, the interest rate is the rate you pay for borrowing money. When you carry a balance on a credit card, you are borrowing money from the issuer. In most cases, there are separate rates for purchases, cash advances, balance transfers, and other categories. The interest rate may be variable (typically tied to market rate changes) or fixed at a certain percentage. Further, the rate on your card may be different from someone else with the same card at the same institution, based on your credit score.
In general, interest rates are expressed as an APR, or annual percentage rate. From this, you can calculate the approximate daily or monthly interest you’ll be charged on purchases. Most major issuers tabulate interest on a monthly basis, so our following example will do the same.
Interest Rate Example
Assume you have a card with an 18% APR. Further, for the sake of simplicity, we’ll say you carry an average daily outstanding purchase balance on the card of $2,000.
18% = 0.18/365 = 0.00049 daily interest rate
$2,000 x 0.00049 = $0.98 interest per day
$0.98 x 30 days per billing cycle = $29.40 in interest charges at end of the month
This is, generally speaking, how credit card companies make money from consumers. The interest charges and other fees can add up to a lot of money. They also get fees from merchants on a per transaction percentage basis, usually 1.5-3%.
For choosing the right credit card, you want to look at the interest rates on various cards. You should also determine if they are fixed or variable. Don’t ONLY consider interest rate, though! Of course, some cards might have low-interest rates but fail in several of the other criteria. But in general, a lower rate is better – it means you pay less every month.
An excellent resource for comparing credit cards, particularly on their interest rates, is NerdWallet.
Brand of Credit Card
The brand of credit card is, simply, the network on which the credit card operates. Common brands include Visa, American Express, MasterCard, and Discover. Essentially, the brand matters because not every merchant or online seller necessarily accepts or works with every brand of card.
The most popular brands are not necessarily the best, either. However, in the case of purchasing power and where they are most accepted, their current market share can be a good indicator for choosing the right credit card. According to WalletHub, the current market share of the major 4 players is as follows:
- Visa 50.6%
- American Express 22.9%
- MasterCard 22.6%
- Discover 4.0%
So, carefully consider the brand when it comes to choosing the right credit card.
Fees refer to the charges that may be levied against your account, other than interest payments. These can include late payment fees, charges if you go over your spending limit, fees for cash advances, ATM fees for cash advances, and more. Typically, these are highly variable from institution to institution, and card to card. By law, though, all are required to be fully disclosed in the credit card agreement. So, before taking the plunge on a given card, you can request this information and compare it to others.
By the same token, if you are the type of person who doesn’t do much with their credit card other than making purchases and paying the minimum payment (or more) on-time, then this may not be a major consideration for you. In this case, if a card checks all your other boxes as the best card, then you might not care about the particulars of the fees.
Increasingly, the rewards programs offered or discounts provided with a given card can be a deciding factor in answering the question, “What credit card should I get?”
Let’s take a look at store/merchant cards first. For store cards that are restricted to only being used at a given store, the only meaningful reason to open one of these accounts is for the discounts and rewards. In some cases, stores offer as much as 15% off when items are purchased with their cards. Others offer loyalty rewards or points that can then be used for discounted transactions, special sales, or other incentives. Typically, you should carefully consider how frequently you shop at a given store, and how much you spend there, before opening a restricted credit card account with that merchant.
On the other hand, we have co-branded store cards that can be used anywhere. For these, you want to choose one from a merchant where you shop regularly and spend a large portion of your shopping funds. Most of these cards accrue points or bonuses from any purchase, regardless of the location, but are tailored to be spent or redeemed at the issuing merchant’s stores. This is most advantageous if you can earn a large number of discounts or rewards for a place you shop often, even by purchases made elsewhere.
Regular Credit Cards
For general purpose cards, there is a myriad of reward programs available. Many offer points or some other type of reward, which can then be redeemed for airline miles, gift certificates to major retailers, statement credits on your account, and many more perks. In a lot of cases, it can be hard to compare these on an apples-to-apples basis. However, most disclose what the conversion rate(s) are from dollars spent on the card to points. So, if you create a hypothetical typical monthly spending scenario, you can easily see what you’d likely accrue from card to card, and consequently how long it would be before you would earn certain rewards.
If you currently think you have a very good credit card but don’t have any kind of discount or rewards programs, you’re missing out! In this case, you should look into what other options your financial institution can provide. Or, if they don’t have rewards cards, consider opening an account elsewhere.
We won’t spend too much time on introductory offers here, because they are, by their nature, limited. Many cards offer new card-holders introductory offers as a kind of sweetener. The goal is to lure you into choosing a credit card from their line. These typically take the form of a limited period of reduced or 0% interest rates, or bonus rewards for a certain limited time period. They are certainly worth comparing, but since they are for a limited duration, and many people keep their credit cards for years upon years, it’s best not to let these sway your decision too much. Far more important is the interest rate after the introductory period ends.
Spending limits on cards are important. However, they vary by card and individual income and collateral. Most cards offered will either start with a low spending limit, or request information as to your then-current income, and whether or not you own or rent your home, car, etc. They will then use this information in order to get a good sense of your financial capabilities. They want to protect themselves should you default on your card. Credit scores are also sometimes a factor.
There is an important trick to know here, however. Usually (though not always), credit cards from an institution you already bank with are the better bet. This is because financial institutions with which you already have a savings or investment account have visibility to your assets already in their possession. They can use that information along with income and collateral information to make a more accurate decision on your limit.
Other Features and Options
There are many additional features and options that we have not covered in this article. However, when it comes to choosing the right credit card, they should be very far down the list. If you are already wealthy enough to be considering a card that offers wealth management or concierge services, for example, then most of the rest of this article may not matter so much to you. In general, features that go above and beyond rewards or perks are non-essentials. The majority of people looking to choose a credit card shouldn’t assign much weight to them.
It might seem strange to list security as the last consideration for choosing the right credit card. However, we do so because really, the security options for most cards are all the same. The industry migrates to better and better security technology over time. The companies keep a very tight pace with one another on adopting new security features. While there are a few cards out there that provided added layers of purchase security (at a cost), most cards on the market today are quite comparable to one another in terms of security features. Therefore, it’s almost a non-consideration for the vast majority of card-holders.
Hopefully, with the information from this article, you are now much better prepared to navigate the maze of credit card offers that are available. Each of these topics in and of themselves could fill a small novel. Fortunately, there are plenty of additional resources available (including within our own site). But it is our hope that this guide has provided you with a good overview to the topic. You should now know the top things to consider when choosing the right credit card to meet your individual needs.
Some Helpful Items to Complement Your New Credit Card…
Most of today’s credit cards come with security chips embedded in the card, but nefarious actors can use RFID signals to try to interrogate the chips and extract information on your purchases or try to clone your card and credentials. A simple RFID-blocking credit card protector sleeve can prevent this, and keep your card safe, stylish, and easy to find in your wallet, pocket, or purse.
These simple, unobtrusive wallets hold a few cards, currency, and a driver’s license, all in a small, compact, and stylish manner. They’re fully RFID-blocking, to prevent theft as we discussed for the product above. Additionally, they’re available in nearly 30 different colors and patterns, allowing you to choose the style that best fits your sensibilities. They’re made from real leather, too, so they’re durable and will withstand years of use.
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